Nu Skin 2010 Annual Report - Direct Selling News

NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements
1. THE COMPANY
Nu Skin Enterprises, Inc. (the “Company”) is a leading, global direct
selling company that develops and distributes premium-quality, innovative
personal care products and nutritional supplements that are
sold worldwide under the Nu Skin and Pharmanex brands and a small
number of other products and services. The Company reports revenue
from five geographic regions: North Asia, which consists of
Japan and South Korea; Greater China, which consists of Mainland
China, Hong Kong, Macau and Taiwan; Americas, which consists of
the United States, Canada and Latin America; South Asia/Pacific,
which consists of Australia, Brunei, Indonesia, Malaysia, New Zealand,
the Philippines, Singapore and Thailand; and Europe, which consists
of several markets in Europe as well as Israel, Russia and South Africa
(the Company’s subsidiaries operating in these countries are collectively
referred to as the “Subsidiaries”).
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and the Subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
USE OF ESTIMATES
The preparation of these financial statements, in conformity with
accounting principles generally accepted in the United States of
America, required management to make estimates and assumptions
that affected the reported amounts of assets and liabilities, and disclosure
of contingent assets and liabilities, at the date of the financial statements
and the reported amounts of revenue and expenses during the
reporting period. Actual results may differ from these estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents are short-term, highly liquid instruments with
original maturities of 90 days or less.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and
are stated at the lower of cost or market, using the first-in, first-out method.
The Company had reserves for obsolete inventory totaling $6.4 million
and $10.5 million as of December 31, 2009 and 2010, respectively.
Inventories consist of the following (U.S. dollars in thousands):
December 31,
2009 2010
Raw materials . . . . . . . . . . . . . . . $ 31,557 $ 31,497
Finished goods . . . . . . . . . . . . . 74,104 82,978
$ 105,661 $ 114,475
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated
using the straight-line method over the following estimated
useful lives:
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . .
Computers and equipment . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . .
Scanners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
39 years
5 – 7 years
3 – 5 years
Shorter of estimated
useful life or lease term
3 years
3 – 5 years
Expenditures for maintenance and repairs are charged to expense
as incurred. When an asset is sold or otherwise disposed of, the cost
and associated accumulated depreciation are removed from the accounts
and the resulting gain or loss is recognized in the statement of income.
Property and equipment are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. An impairment loss is recognized if the
carrying amount of the asset exceeds its fair value.
GOODWILL AND OTHER INTANGIBLE ASSETS
Acquired intangible assets may represent indefinite-lived assets,
determinable-lived intangibles, or goodwill. Of these, only the costs
of determinable-lived intangibles are amortized to expense over their
estimated life. The value of indefinite-lived intangible assets and residual
goodwill is not amortized, but is tested at least annually for impairment.
Our impairment testing for goodwill is performed separately
from our impairment testing of indefinite-lived intangibles. We
test goodwill for impairment, at least annually, by reviewing the book
value compared to the fair value at the reportable unit level. We test
individual indefinite-lived intangibles at least annually by reviewing the
individual book values compared to the fair value. Considerable management
judgment is necessary to measure fair value. We did not
55